Wrong stimulus

November 10, 2009|From the Washington Post

Official unemployment is hovering perilously close to 10 percent, and about a third of the jobless have been out of work for at least six months. Therefore Congress was right on Thursday to extend unemployment benefits, for reasons of social justice and economic stimulus. Alas, the congressional leadership decided to weigh down this worthy measure with another that might not have passed on its own and that certainly would not have deserved to: an extension and expansion of the wasteful tax credit for homebuyers. Until now, Congress merely offered $8,000 for first-time house purchasers. That incentive, passed into law in February and set to expire at the end of this month, would now extend to deals signed by next April 30 and closed by June 30. In addition, those who already own a home can "step up" into a bigger, better place than the one they've had for the past five years or more, with a $6,500 tax credit. The total projected cost is $10.8 billion. Unemployment benefits represent a relatively efficient way to stimulate the economy, because they bolster the capacity of people to consume, without favoring one part of the economy over another. The real estate tax credit is not. And, it's been vulnerable to fraud: A Treasury Department official testified to Congress last month that he had identified $500 million in claims by people who might not have been first-time buyers. The new legislation adds some anti-fraud measures. But even so, the credit is a bad idea. It merely shifts demand from elsewhere in the economy to one sector government has chosen to help -- having been urged to do so by a powerful lobby. "For the vast majority of cases," Sen. Kit Bond, R-Mo., noted, "the homebuyer tax credit amounted to a free gift since it did not affect their decision to purchase a home. And for the small minority of buyers whose decision was directly caused by the credit, this raises the question of whether we are subsidizing buyers who may not have been able to afford to buy a home in the first place."